Green Enterprises produces small engines for lawn mowers. during the year, 110,000 engines were produced. The actual labor used was 60,000 hours at $9.50 per hour. Green has the following labor standard: 0.5 hour at $10
1. compute the labor rate variance.
2. compute the labor efficency variance.
please help.
To compute the labor rate variance, follow these steps:
1. Calculate the actual labor cost: Multiply the actual labor hours (60,000) by the actual rate ($9.50).
Actual Labor Cost = Actual Labor Hours × Actual Rate = 60,000 × $9.50 = $570,000
2. Calculate the standard labor cost: Multiply the actual labor hours (60,000) by the standard rate ($10).
Standard Labor Cost = Actual Labor Hours × Standard Rate = 60,000 × $10 = $600,000
3. Compute the labor rate variance: Subtract the standard labor cost from the actual labor cost.
Labor Rate Variance = Actual Labor Cost - Standard Labor Cost = $570,000 - $600,000 = -$30,000
To compute the labor efficiency variance, follow these steps:
1. Calculate the standard labor hours: Multiply the number of units produced (110,000) by the standard hours per unit (0.5).
Standard Labor Hours = Number of Units Produced × Standard Hours per Unit = 110,000 × 0.5 = 55,000
2. Compute the labor efficiency variance: Subtract the standard labor hours from the actual labor hours and multiply by the standard rate.
Labor Efficiency Variance = (Actual Labor Hours - Standard Labor Hours) × Standard Rate
= (60,000 - 55,000) × $10
= 5,000 × $10
= $50,000
So, the labor rate variance is -$30,000 and the labor efficiency variance is $50,000.